James R. and Myrtice L. Peacock - Page 27

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          ultimately been realized by PMSI.9  This factor favors                      
               viii.  Taxpayer’s Financial Status                                     
               Substantial income from sources other than the activity                
          (particularly if the losses from the activity generate                      
          substantial tax benefits) may indicate that the activity is not             
          engaged in for profit.  This is especially true where there are             
          personal or recreational elements involved.  Sec. 1.183-2(b)(9),            
          Income Tax Regs.                                                            
               Petitioners argue that this factor weighs in their favor.              
          We disagree.  Petitioners had substantial income and cash                   
          receipts from activities other than PMSI, and their net worth               
          exceeded $1 million.  Petitioners’ financial status allowed them            
          to finance the fishing activity and to use the activity’s losses            
          to reduce significantly their income tax liability.  To be sure,            
          but for those losses, PMSI would have reported (and Ms. Peacock             
          would have been required to recognize) large amounts of ordinary            
          income in each subject year.  By participating in the fishing               
          activity, however, petitioners aim to reduce their income while,            
          at the same time, participating jointly in an expensive activity            

               9 We find as a fact that the Billfish Series tournaments               
          awarded individual contestants prizes generally ranging from                
          $150,000 to $2 million.  We are unable to find, however, the                
          amount of the specific prizes which were paid by the tournaments            
          in which petitioners participated.  Nor are we able to find the             
          specific prizes payable by the tournaments in which the                     
          misfortunes occurred.                                                       

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